Thailand may miss Asian growth bonanza

Thailand has been a key partner in Southeast Asia. It is our eighth biggest trade partner, with two-way trade worth well over $16 billion. We have a free-trade agreement with Thailand. It has traditionally been a diplomatic ally of Canberra's, a champion of democracy in the region and a nation with which we have a remarkably neuralgia-free relationship.

In Canberra's view, Thailand is always the second most important ASEAN member, behind only Indonesia. It is the second biggest economy in ASEAN and from a broader geo-strategic point of view is probably even more critically located. It is at the pivot point between China and Southeast Asia and straddles both the Indian and Pacific oceans. It borders Burma, Laos, Cambodia and Malaysia and is just a chip and a putt from China itself.

It is a full military ally of the US. Undoubtedly, Washington is the most important foreign player in Thailand. Its collaboration with the Thai military has been extremely intimate, at least since the days of the Vietnam War.

The US is trying to build up its presence in Southeast Asia, especially its military ties. The Southeast Asian states desperately want the US military presence, both as the automatic stabiliser of the region and as an obvious hedge against growing Chinese influence. Chinese soft power in Southeast Asia is vastly overrated, of course. The US remains by far the most important foreign player. But among the Southeast Asians, only the Singaporeans are forthright about speaking openly of their desire for a greater US presence. The US would like to be doing more with the Thai military. But the acute political instability of the last few months renders this impossible.

The US, and Australia, co-operate intimately with Thailand in the war against terror in Southeast Asia (though no one uses that term, of course).

Al-Qa'ida has sheltered in Thailand, so has Jemaah Islamiah. Western intelligence has tracked Hezbollah as having a substantial network in Thailand. Hezbollah has used Thailand for safe houses, for obtaining false documentation and for fund raising.

The Rudd government's white paper identified a Hezbollah presence in Australia and also suggested indirectly that if there is conflict with Iran, Hezbollah's worldwide network, including in Australia, could be mobilised to attack Iran's enemies abroad. That would be us.

Meanwhile, the Muslim separatist insurgency in southern Thailand rages on, the most murderous and violent insurgency in Southeast Asia. It has so far not linked itself intimately with the global jihadist movements, but that has not been for want of trying by the movements. The southern insurgency could well see the confusion in Bangkok as offering acute opportunities.

At the same time, Thailand is managing a fractious relationship with Cambodia and a steady inflow of illegal immigrants, some of them carrying a range of infectious diseases, from Burma. Indeed, there is also a likelihood of renewed conflict between Burmese ethnic separatist groups, some of whom shelter on the Thai-Burma border, and the Burmese government. It's a big security agenda in anybody's terms. How will the riots and bloodshed of recent weeks play into all this? So far, the institutions of the Thai state have stood up reasonably well to all the violence. The Thai Finance Minister during the week was telling CNN that he thought all the violence would so far take about half a percentage point off the Thai GNP. But growth this year, if the violence now subsides, is likely to still be about 4 per cent, which is not too bad given everything.

Tourism accounts for about 7 per cent of the Thai economy and that will be hit hard unless peace and calm are quickly restored. Most foreign investment that is already in Thailand is likely to stay, but it is hard to imagine Thailand attracting large new foreign direct investment without a period of at least some months, possibly more than that, of relative calm. The Thai economy is therefore missing out on the growth bonanza in Asia, although it is also caught somewhat in a middle-income trap, neither fully developed, but with labour costs too high to compete easily with China or Vietnam. So, will we get peace and calm restored?

That depends heavily on what the Red Shirts protesters, and their foreign backers, decide to do next. The army has restored control over Bangkok. It tried to do so in a way which minimised bloodshed but dozens of people died, nonetheless. The scattered Red Shirts, for their part, set fire to some of the biggest and most important buildings in Bangkok on their way out. The Thai military does not want to stage another coup, but nor is it likely to allow Red Shirts demonstrators to congregate in Bangkok in huge numbers again.

In the course of negotiations with the demonstrators, Prime Minister Abhisit Vejjajiva, offered to hold early elections by November. However, that offer was withdrawn when the Red Shirts refused to accept it. In the normal course of things, an election need not be held until late next year.

The timing is so sensitive partly because of uncertainty about the royal succession. The king, Bhumibol Adulyadej, is held in great respect by most of the Thai people. However, he is 82 and in very poor health. The crown prince, Vajiralongkorn, is not as well regarded as his father.

There are countless ironies and contradictions in the competing political line-ups. Abhisit's government is said to be supported by the Bangkok establishment, which includes ex-military figures, the military leadership itself, much of the business community and some figures said to be associated with the palace. However, it is also supported by much of liberal Bangkok, students and middle-class people who objected to the corruption which raged under the Red Shirts' champion, former prime minister Thaksin Shinawatra.

Similarly, the Red Shirts are based in the rural and relatively poor northeast. They supported the economic and nationalist populism of Thaksin. However, there are also large numbers of urban supporters of the Red Shirts and large numbers of rural supporters of Abhisit's government.

There is a regional and ethnic dimension to the conflict, as well. Thailand is an ancient civilisation but a modern country with various different ethnic groups. The people of the northeast are somewhat ethnically different from the people of Bangkok. They sometimes feel the people of Bangkok look down on them.

Yet it is a typical, one might say quintessential, urban Sino-Thai entrepreneur, Thaksin, who is leading the revolt of the northeast, which hasn't shared as much as it would like in the economic modernisation, which has been so much a Sino-Thai affair. One danger of this situation is that the northeast starts to develop some of the loathing for Bangkok which the Muslim south feels.

The Red Shirts themselves are divided and not clearly led. Thaksin is believed by some analysts to finance some of their activities. The Red Shirts have lost a cadre of leadership to the arrests of the last week.

They are also divided between peaceful demonstrators and far more militant, radical and downright violent elements.

The renegade general Khattiya Sawasdipol was killed in this week's turmoil. He had assembled, analysts believe, somewhere between 300 and 500 former military personnel, mostly members of a Rangers unit, and talked provocatively of taking the fight back to the Thai army. This pro-Red Shirts force loses its leadership with his death, but most of them are still at large.

In the normal way of things, there must also be some hundreds of other Red Shirts followers who have served in the police, the army or some paramilitary unit. The violence of recent weeks could well have a radicalising influence on these people.

If the Red Shirts remain well organised, they could well engage in a campaign of sabotage attacks on symbols of the Thai state, or on businesses associated with the Abhisit government.

There is likely to be a series of demonstrations in centres in the northeast. These will probably be billed as commemorations of those killed in Bangkok.

The questions now are how well the Red Shirts can organise this kind of movement, how violent do the Red Shirts want it to be, and how will the government and the army respond. Probably, the government and the army will want to keep the response as low key as possible, but will determinedly want to avoid a repeat of the chaos and loss of control which they experienced at the height of the recent demonstrations.

A relatively small number of people can make a country all but ungovernable. But could you hold a credible national election in these circumstances? Some analysts believe there are deep reasons the government will want to stay in control for some time yet.